The Swift Corporation
The Swift Corporation has 5,000 sales representatives and employees in the United States who drive company cars. The company’s risk manager has recommended to the firm’s management that the company should implement a partial retention program for physical damage losses to company cars.
Explain the advantages and disadvantages of a partial retention program to the Swift Corporation.
Advantages
Disadvantages
In case the actual losses are lower than in the insurer’s loss allowance then The Swift Corporation will save more money
May lead to high volatility in the short term in the loss of firm experience if the Swift Corporation’s swift losses retained is more upper than insurance premium loss allowance
It can lead to reasonable expenses savings
Higher expenses due to the establishment of loss prevention programs that can also be cheaply provided by the insurers
Identify the factors that the Swift Corporation should consider before it adopts a partial retention program for physical damage losses to company cars.
The total amount of losses that the firm will retain
The additional cost of the retention such as administrative problems
The average frequency and the severity of the losses
The entire company past losses experiences
The element of the premium that the company could be saved such as the potential premium saving
Predictability of the losses
The availability of the excess of the losses coverage
The tax aspects of the company
If a partial retention program is adopted, what are the various methods the Swift Corporation can use to pay for physical damage losses to company cars?
The other method that the Swift Corporation can use to pay for the physical damages of the losses to company cars is by paying out of the company current net income, earmarked assets, the company fund borrowed from the commercial lenders, or a payment from a captive insurer if a captive insurer has been established. The losses over the retention levels can be paid by commercial insurance.
Identify two risk-control measures that could be used in the company’s partial retention program for physical damage losses.
The two risk-control measures that the company use in the partial retention program for physical damage losses is risk control. The risk control refers to theme assure that reduces the frequency and the severity of the losses. The company could avoid hiring driver with poor driving records such as have a history on the road criminal case. Other than that, the company could also reduce the losses by requiring drivers to take a defensive driving course so that the company can reduce the physical damages losses.